"Overseas, Burden or Benefit? Three Key Issues Surrounding the Network Usage Fee Controversy"

Conflict Intensifies Between ISP and CP
Usage Fees Already Paid Overseas
Is the "Excessive Burden on CP" Criticism Justified?

[Asia Economy Reporter Lim Hye-seon] The conflict between domestic Internet Service Providers (ISPs) and overseas Content Providers (CPs) such as Google over the mandatory legislation of internet network usage fees is intensifying. The legislative intent is to prevent the 'free riding' of massive data users like Google and Netflix, but the 'network usage fee' is being pointed out as a cause of deteriorating quality in video services used in daily life, leading to widespread opposition not only from the gaming industry but also from content creators and users.

Moreover, indiscriminate information is flooding as domestic telecom operators and overseas content providers engage in public opinion battles based on their respective arguments. Currently, seven amendments to the Telecommunications Business Act have been proposed in the National Assembly, focusing on imposing network usage fees on content providers with high data usage such as Google and Netflix. The network usage fee refers to the charge paid by content providers for using the internet network created by telecom operators.

1. No network usage fees overseas?

There are concerns that the 'Zero Price Rule (ZPR),' which means that if content providers pay an entrance fee to telecom companies, they do not have to pay for subsequent costs, will be broken. In other words, if payment of network usage fees is mandated, domestic content providers will have to pay fees overseas as well. However, in reality, domestic content providers are already paying network usage fees to overseas telecom companies. According to Naver Line's Japan business report, 5% of operating revenue (as of 2018) is already used for infrastructure and communication costs.

It also explicitly states as a business risk that "most of the network infrastructure is received from third parties, so if there is a problem with the service, it could significantly affect business, financial status, and management performance." This is evidence that network usage fees have been paid overseas for several years. Connection to local subscriber networks is an essential procedure to provide local services. Domestic content providers connect to local subscriber networks to route traffic overseas. This process involves costs. Disney Plus also indirectly pays network usage fees to LG Uplus through a content delivery network company in Korea.

2. Network usage fees are excessively burdensome for corporate management

There are also claims that network usage fees impose an excessive burden on the corporate management of content providers. The scale of network usage fees paid by content providers is estimated to be around 2-5% of their sales. According to AfreecaTV's business report last year, line usage fees amounted to 13.6 billion KRW, about 5% of total sales. Naver, Kakao, Meta (Facebook), and others also pay network usage fees ranging from 30 billion to 80 billion KRW annually.

Recently, Professor Shin Min-soo of Hanyang University analyzed and compared the advertising revenue earned by Google from a globally hit music video and the network usage fees Google should have paid. Professor Shin estimated that the network usage fee Google should have paid for this music video over 10 years is 18.46 million KRW. On the other hand, the advertising revenue Google earned from the music video over 10 years was estimated to be between 7.4 billion and 11 billion KRW. The proportion of network usage fees to Google’s advertising revenue is about 0.17% to 0.25%. Korea ranks first in the world for internet environment but 16th in broadband cost rankings.

3. Content providers are absolutely the 'weaker party'

There is also an argument that domestic content providers are absolutely the 'weaker party' in terms of bargaining power. According to last year’s competition situation evaluation report by the Korea Information Society Development Institute, there is a survey result on bargaining power regarding dedicated internet line providers. The survey shows that 47.9% answered that the bargaining power between content providers as buyers and telecom companies as providers is similar. Rather, 40.0% responded that content providers have stronger bargaining power. Only 17.1% answered that telecom companies have stronger bargaining power.

This content was produced with the assistance of AI translation services.